Sphere Entertainment (SPHR) - 2025 Q1 - Quarterly Report

Sphere Venue Operations and Expansion - Sphere segment's first venue in Las Vegas opened in September 2023, accommodating up to 20,000 guests and featuring The Sphere Experience, concerts, residencies, and marquee sports events[149] - Sphere Studios supports production with a 68,000-square-foot development facility and a 28,000-square-foot custom dome for immersive content creation[149] - Sphere's Exosphere features nearly 580,000 square feet of programmable LED paneling, the largest LED screen in the world[149] - Sphere Entertainment plans to open a second Sphere venue in Abu Dhabi, UAE, in collaboration with DCT Abu Dhabi[149] - The Company opened Sphere in Las Vegas in September 2023, expecting it to generate substantial revenue and adjusted operating income on an annual basis over time[201] - The Company and DCT Abu Dhabi announced plans to bring the world's second Sphere to Abu Dhabi in October 2024, with DCT Abu Dhabi funding construction and paying a franchise initiation fee[202] - Sphere's operating results rely on the success of original immersive productions and the ability to attract guests and artists to its venues[154] - The Company anticipates that Sphere in Las Vegas will generate significant revenue from various streams, including immersive productions, advertising, and concert residencies[201] MSG Networks Operations - MSG Networks operates regional sports networks and a DTC streaming product, MSG+, now part of the Gotham Sports streaming joint venture with YES Network[150] - MSG Networks broadcasts exclusive live games of NBA and NHL teams, including the New York Knicks and New York Rangers[150] - MSG Networks revenues decreased by $9.387 million (9$553,000 (1%), driven by higher rights fees expense[187] - MSG Networks made a $20,625 required quarterly amortization payment in September 2024[194] - The interest rate on the MSGN Term Loan Facility as of September 30, 2024 was 9.00$109.9 million (93%) to $227.9 million for the three months ended September 30, 2024, compared to the same period in 2023[157] - Direct operating expenses increased by$55.2 million (65%) to $139.7 million, primarily due to higher costs associated with Sphere in Las Vegas[157][158] - Depreciation and amortization increased by$67.7 million, driven by assets related to Sphere in Las Vegas placed in service in Q1 2024[159] - Interest expense increased by $26.9 million due to the discontinuation of interest capitalization and the issuance of 3.50$47.7 million (82%) to $10.2 million, reflecting better performance in the Sphere segment[168][169] - Sphere segment revenues increased by$119.3 million, driven by 192 performances of The Sphere Experience and 15 performances of V-U2 An Immersive Concert Film[171][174] - Event-related revenues increased by $36.8 million due to a full quarter of concerts and marquee events at Sphere in Las Vegas[175] - Income tax benefit for Q3 2024 was$33.0 million, reflecting an effective tax rate of 24%, higher than the statutory federal rate due to state and local tax benefits[166] - Restructuring charges decreased by $2.5 million (73$913, primarily due to lower termination benefits compared to the prior year[161] - The Company recognized impairment and other losses of $4.0 million, compared to gains of$1.5 million in the prior year, related to fixed assets at Sphere Las Vegas[160] - Revenues increased due to higher Exosphere advertising revenues and suite license fee revenues, reflecting a full quarter of operations compared to a partial quarter in the prior year[176] - Other revenues increased primarily due to the acquisition of Holoplot GmbH in April 2024[177] - Direct operating expenses increased by $54.644 million, driven by higher venue and event-related expenses, including 192 performances of The Sphere Experience and 15 performances of V-U2[178] - Selling, general, and administrative expenses increased by$20.8 million, primarily due to higher employee compensation and related benefits[179] - Depreciation and amortization increased by $67.461 million, mainly due to assets related to Sphere in Las Vegas placed in service at the end of Q1 2024[180] - Operating loss increased by$26.634 million, driven by higher depreciation, direct operating expenses, and selling, general, and administrative expenses[183] - Adjusted operating income improved by $56.768 million, primarily due to increased revenues, partially offset by higher operating expenses[184] Debt and Liquidity Management - The company's unrestricted cash and cash equivalents balance was$539.630 million as of September 30, 2024, with $158.022 million in advance cash proceeds from ticket sales[192] - The principal balance of the Company's total debt outstanding as of September 30, 2024 was$1,362,875, including $829,125 of debt under the MSG Networks Credit Facilities[194] - The total leverage ratio as of September 30, 2024 was 5.39:1.00, and the interest coverage ratio was 2.05:1.00[209] - The LV Sphere Term Loan Facility has an interest rate of 9.57$50,000, with $25,000 required to be held in cash or cash equivalents[216] - The company completed a private offering of$258.75 million in aggregate principal amount of 3.50% Convertible Senior Notes on December 8, 2023[219] - The 3.50% Convertible Senior Notes bear interest at 3.50% per year, payable semi-annually, and mature on December 1, 2028[222] - Cash, cash equivalents, and restricted cash totaled $553.217 million as of September 30, 2024, a decrease of$20.016 million compared to June 30, 2024[232] - Net cash from operating activities for Q3 2024 increased by $128.735 million year-over-year, driven by higher collections from customers and fewer payments to vendors[233] - Net cash from investing activities for Q3 2024 decreased by$86.084 million year-over-year, primarily due to the absence of $256.501 million from the sale of MSGE Retained Interest in the prior year[234] - Net cash from financing activities for Q3 2024 decreased by$86.476 million year-over-year, primarily due to the absence of $65 million from the Delayed Draw Term Loan Facility in the prior year[235] - MSGN L.P. entered into a Forbearance Agreement with lenders, extending the Forbearance Period to November 26, 2024[207] Goodwill and Financial Risk Management - Total goodwill as of September 30, 2024 was$470.152 million, with $45.644 million attributed to Sphere and$424.508 million to MSG Networks[238] - The company elected to perform a qualitative assessment of goodwill impairment for both reporting units during Q3 2024, considering macroeconomic conditions, industry trends, and financial performance[239] - The company's reporting units had sufficient safety margins with fair value exceeding carrying value by more than 10%[240] - A hypothetical 200 basis point increase in floating interest rates would increase the company's interest payments by $22,083[243] - The GBP/USD exchange rate fluctuated by approximately 5.53$3,600 in the company's net asset value[244] - The EUR/USD exchange rate fluctuated by approximately 5.43% during the 12 months ended September 30, 2024[245] - A 10% fluctuation in the EUR/USD exchange rate would result in a change of approximately $250 in the company's net asset value[245] - The company may reduce foreign currency translation risk by entering into foreign currency forward exchange contracts[246] - The company does not plan to enter into derivative financial instrument transactions for speculative purposes[246] Share Repurchase and Strategic Investments - The Company's Board of Directors authorized a share repurchase program of up to$350,000 of Class A Common Stock, with no shares repurchased to date[200] - The Company is exploring opportunities to expand its presence in the entertainment industry, with new investments potentially contributing to long-term success[155]